2014 Q3 Proxy Update

The 2015 proxy season is fast approaching, PwC and Broadridge released a quarterly research report which reviews proxy related data from 4,113 shareholder meetings
held between January 1 and June 30, 2014 and highlights several themes and trends that may inform how shareholders and companies will interact on four key issues:

Director Elections: Director elections continue to attract widespread voting, with 93% of elections at large companies garnering votes between 90-100%. In contrast, only 75% of voted shares were cast in the 90-100% range for small-cap firms. Moreover, of the 22,554 directors up for election, roughly 5% failed to receive 70% of the shares voted. Only less than half of that failed to get majority support.

Say on pay: The US Dodd-Frank Act of 2010 introduced a number of requirements that have greatly increased disclosure obligations, including ‘say on pay,’ which requires all public companies to present executive compensation plans to a shareholder vote. ‘Say on pay’ votes are becoming increasingly common in Canada. Although not binding, a failure to receive majority shareholder support is demonstrative of a lack of confidence or inflated compensation packages, or both. In any case, support of plans remained consistent with support in 2013, at 89%, with a slight drop in support at mid-, small-, and micro-cap companies. Overall, notwithstanding the increasing dialogue between directors and shareholders, the compensation landscape has not changed.

Independent board chair: 2014 has seen a notable increase in the number of shareholder proposals to separate the roles of CEO and Chair of the board; there were 53 such proposals made in 2013, and 62 in 2014, with an average support of 30% of shareholder votes and six successful proposals.

Social and environmental proposals: Proposals relating to social and environmental issues have increased through the 2014 calendar year, but have only garnered 18% support when put to a vote. In Canada, most provinces have adopted the amendments to National Instrument 58-101 which provide for new enhanced corporate disclosure of board diversity and board renewal policies, expanding ‘comply or explain’ responsibilities with respect to the representation of women on boards. The 2015 proxy season will represent the first test of these new obligations and activists will be watching closely.

Other notable trends that we will likely see include a continuation of the increasing reliance on electronic delivery of proxy materials, as well as electronic voting. In addition, virtual shareholder meetings promise to grow due to advances in the accessibility of conferencing technology. Finally, institutional ownership is up to 71% (with 29% retail ownership), reflecting an increasing reliance on investment management firms.

As we close out the fourth quarter of 2014, shareholders, activists and companies will be watching these themes and trends closely to understand what will likely influence proposals and voting in 2015.

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Norton Rose Fulbright's Special Situations Team has played a leading role in Canada’s most high-profile shareholder activist and defence mandates, as well as complex reorganization transactions. The Special Situations Law blog is about sharing our insights with you. With videos discussing shareholder activism, links to relevant case law and legislation and incisive commentary about regulatory and legal developments, our blog includes a wealth of resources and perspectives on special situations law.